Gold is under $900 now. It will hit $20,000. That was the message of an email I
received the other day. The figure was based on some strange ratio between
paper money and what the price of gold ought to be. The logic would be very
appealing to those who think the world is coming to an end: to stave off the
housing and credit crises, politicians have increased the amount of paper (and
electronic) money in our financial system. If you double the number of dollars
in the system, then the market should make you pay double the number of dollars
for an ounce of gold. Since the paper money in circulation in the world is $100
trillion and the total volume of gold is five billion ounces, the price of gold
ought to be $20,000. Simple.
Gold buffs make such arguments all the time. They work out ratios of oil and
gold or Dow Jones Industrial Average and gold to predict how high gold can go.
This book quotes many of these gold buffs (like Doug Casey and James Turk) and
assembles a wide variety of information about gold and economy to tell you why
you should buy what John Maynard Keynes had called the ‘barbaric relic’.
The credentials of the author are not printed (“manages a financial
research and advisory company”) and the book provides no long-term comparative
returns between gold and other assets. Here is one. Gold was over $800 in early
1980s and is $900 now. The Sensex started at 1,000 in 1986 and is 16,000 now.
You know what works over the long term. – D.B.
For the past few months, Indian investors,
managers and businessmen have been rudely reminded of something that we
normally find dry, forbidding and remote: macro economics. Inflation, balance
of payments, fiscal deficit and GDP growth are not exciting things to talk
about but, since politicians and policy-makers plan poorly, are not accountable
and often erode the efficiency of many institutions, we frequently fall into an
economic quagmire. At such times, suddenly, newspapers are full of dour
economic headlines such as ‘fiscal deficit has reached alarming levels‘; ‘the
rupee is depreciating‘; ‘inflation is shooting up’ and ‘interest rates
are rising‘. At times like these, it is good to have a handy tome of economics.
A Concise Guide to Macro Economics by David Moss, professor of economics at
Harvard, may serve that purpose. It is a slim volume of two sections. The first
one has three chapters that describe output (measuring it and why it goes up
and down), money (interest rates, exchange rate and inflation) and expectations
(how it influences inflation, output and other variables). The second section
has articles on selected topics which are all US-centric such as history of
monetary policy in the US, fundamentals of GDP accounting, reading a
balance-of-payments statement and understanding exchange rates. A good primer.